Friday, April 26, 2024

FTAs will open doors to sheepmeat growth

Neal Wallace
UK, EU account for more than half NZ’s chilled sheepmeat exports.
Rail freight to Napier Port has reopened after seven months. . Photo Getty
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The importance of European and United Kingdom sheepmeat markets will only be enhanced by the looming free trade agreements, according to the Meat Industry Association.

Recent demand has been tempered by an economic slowdown and food inflation in these markets, which peaked in the UK at 17%.

“The respective free trade agreements will provide opportunities for growth in those markets, particularly the UK,” the Meat Industry Association (MIA) said.

While China has grown in importance as a volume market, NZ has very limited market access for chilled sheepmeat, making up less than 1% of NZ exports to the market last year.

Even with disrupted logistics in the last couple of years, the UK and EU in 2022 accounted for more than 50% of NZ chilled sheepmeat exports measured by volume and value.

A Ministry of Foreign Affairs and Trade (MFAT) spokesperson said the FTAs with the UK and EU could start in the first half of next year.

“The UK and EU FTAs deliver useful flexibility to the New Zealand sheepmeat industry to export additional sheepmeat duty free to both markets on top of existing World Trade Organisation [WTO] quota in the future, should there be a commercial interest in doing so,” said the MFAT spokesperson. 

The FTA with the EU allows access for an extra 38,000t of sheepmeat at zero duty seven years after the agreement comes into force.

Similarly access to the UK will increase in two stages, by 35,000t a year from year one to four and 50,000t a year from year five to 15, with access completely duty free from year 16.

“Despite the drop in exports in recent years, the WTO sheepmeat quota is still extremely valuable for NZ,” the MIA statement said.

“If NZ’s exports of sheepmeat in 2022 had been subject to the full out-of-quota rates, the tariff cost would have been more than $300 million.”

The big winner from the FTA has been beef.

Currently WTO high quality beef quotas are relatively small, 1102t to the EU and 198t into the UK, with both incurring a 20% tariff. 

In the first year of the UK FTA, NZ will have a duty-free beef quota of 12,000t increasing to 38,820t in year 10, after which exports will be subject to a tariff of 20% if the quota is exceeded. It becomes tariff free after 15 years.

When the EU FTA begins, the tariff on the WTO beef quota will fall from 20% to 7.5% and NZ will have access to a new FTA beef quota, which starts at 3333t and increases to 10,000t after seven years, also with an in-quota tariff rate of 7.5%.

The MIA notes that quotas are calculated on carcase weight equivalent and 99% of NZ exports are in boneless form, reducing the useable quota volume.

An MFAT spokesperson said NZ’s duty-free WTO quota access to the EU and UK for sheepmeat has been critical for NZ.

“In the 2000s, the EU and UK were responsible for upwards of 60% of New Zealand’s overall sheepmeat exports by value.

“Today, they continue to account for a combined 30% of sheepmeat exports by value, notwithstanding strong growth in the overall value of trade, from $2.5 billion to $4bn and significant growth in exports to China, up from 3% to 40% by value.”

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